November 4, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 26, 2021

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-21660

PAPA JOHN’S INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		61-1203323
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		number)

2002 Papa John’s Boulevard

Louisville, Kentucky 40299-2367

(Address of principal executive offices)

(502) 261-7272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $0.01 par value	PZZA	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At October 29, 2021, there were outstanding 36,363,904 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — September 26, 2021 and December 27, 2020	3

	Condensed Consolidated Statements of Operations — Three and Nine months ended September 26, 2021 and September 27, 2020	4

	Condensed Consolidated Statements of Comprehensive Income — Three and Nine months ended September 26, 2021 and September 27, 2020	5

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and Nine months ended September 26, 2021 and September 27, 2020	6

	Condensed Consolidated Statements of Cash Flows — Nine months ended September 26, 2021 and September 27, 2020	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	42

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets



	September 26,		December 27,
(In thousands, except per share amounts)	2021		2020
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	105,813	$	130,204
Accounts receivable, net		79,534		90,135
Notes receivable, current portion		13,075		11,318
Income tax receivable		599		1,273
Inventories		33,490		30,265
Prepaid expenses and other current assets		39,249		43,212
Total current assets		271,760		306,407
Property and equipment, net		209,072		200,895
Finance lease right-of-use assets, net		21,917		16,840
Operating lease right-of-use assets		174,119		148,110
Notes receivable, less current portion, net		37,263		36,538
Goodwill		80,906		80,791
Deferred income taxes		13,926		10,800
Other assets		80,991		72,389
Total assets	$	889,954	$	872,770

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable	$	42,384	$	37,370
Income and other taxes payable		26,221		10,263
Accrued expenses and other current liabilities		201,528		174,563
Current deferred revenue		20,617		19,590
Current finance lease liabilities		4,914		3,545
Current operating lease liabilities		22,455		23,538
Current portion of long-term debt		—		20,000
Total current liabilities		318,119		288,869
Deferred revenue		12,471		13,664
Long-term finance lease liabilities		17,555		13,531
Long-term operating lease liabilities		157,359		124,666
Long-term debt, less current portion, net		414,915		328,292
Deferred income taxes		178		948
Other long-term liabilities		98,872		111,364
Total liabilities		1,019,469		881,334

Series B Convertible Preferred Stock; $0.01 par value; no shares authorized, issued or outstanding at September 26, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020		—		251,901
Redeemable noncontrolling interests		7,531		6,474

Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 48,989 at September 26, 2021 and 45,288 at December 27, 2020)		490		453
Additional paid-in capital		440,742		254,103
Accumulated other comprehensive loss		(9,910)		(14,168)
Retained earnings		171,378		219,158
Treasury stock (12,806 shares at September 26, 2021 and 12,743 shares at December 27, 2020, at cost)		(755,035)		(741,724)
Total stockholders’ deficit		(152,335)		(282,178)
Noncontrolling interests in subsidiaries		15,289		15,239
Total Stockholders’ deficit		(137,046)		(266,939)
Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit	$	889,954	$	872,770

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended				Nine Months Ended
		September 26,	September 27,		September 26,		September 27,
(In thousands, except per share amounts)	2021		2020		2021		2020

Revenues:
Domestic Company-owned restaurant sales	$	191,584	$	178,371	$	584,942	$	526,317
North America franchise royalties and fees		31,933		25,281		97,123		68,895
North America commissary revenues		189,224		181,338		560,743		504,379
International revenues		38,408		33,440		110,629		87,592
Other revenues		61,633		54,511		186,099		156,240
Total revenues		512,782		472,941		1,539,536		1,343,423
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses		155,477		144,803		465,658		419,082
North America commissary expenses		175,399		167,937		518,310		466,676
International expenses		21,743		19,370		62,791		52,775
Other expenses		56,039		50,917		168,092		148,219
General and administrative expenses		54,070		52,601		157,779		148,680
Depreciation and amortization		11,477		12,764		36,830		37,436
Total costs and expenses		474,205		448,392		1,409,460		1,272,868
Operating income		38,577		24,549		130,076		70,555
Net interest expense		(3,979)		(3,636)		(11,275)		(11,230)
Income before income taxes		34,598		20,913		118,801		59,325
Income tax expense		4,057		4,516		19,387		11,984
Net income before attribution to noncontrolling interests		30,541		16,397		99,414		47,341
Net income attributable to noncontrolling interests		(1,285)		(689)		(4,021)		(2,576)
Net income attributable to the Company	$	29,256	$	15,708	$	95,393	$	44,765

Calculation of net income (loss) for earnings per share:
Net income attributable to the Company	$	29,256	$	15,708	$	95,393	$	44,765
Dividends on redemption of Series B Convertible Preferred Stock		—		—		(109,852)		—
Dividends paid to participating securities		(137)		(3,548)		(5,964)		(10,546)
Net income attributable to participating securities		(158)		(703)		—		(1,809)
Net income (loss) attributable to common shareholders	$	28,961	$	11,457	$	(20,423)	$	32,410

Basic earnings (loss) per common share	$	0.80	$	0.35	$	(0.59)	$	1.00
Diluted earnings (loss) per common share	$	0.79	$	0.35	$	(0.59)	$	0.99

Basic weighted average common shares outstanding		36,387		32,616		34,619		32,347
Diluted weighted average common shares outstanding		36,719		32,971		34,619		32,643

Dividends declared per common share	$	0.350	$	0.225	$	0.800	$	0.675

See accompanying notes.

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Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended				Nine Months Ended
	September 26,		September 27,		September 26,		September 27,
(In thousands)	2021		2020		2021		2020


Net income before attribution to noncontrolling interests	$	30,541	$	16,397	$	99,414	$	47,341
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		(1,113)		1,721		383		(1,438)
Interest rate swaps (1)		1,535		1,647		5,147		(9,375)
Other comprehensive income (loss), before tax		422		3,368		5,530		(10,813)
Income tax effect:
Foreign currency translation adjustments		256		(395)		(88)		332
Interest rate swaps (2)		(353)		(379)		(1,184)		2,156
Income tax effect		(97)		(774)		(1,272)		2,488
Other comprehensive income (loss), net of tax		325		2,594		4,258		(8,325)
Comprehensive income before attribution to noncontrolling interests		30,866		18,991		103,672		39,016
Less: comprehensive (income), redeemable noncontrolling interests		(692)		(301)		(2,192)		(1,184)
Less: comprehensive (income), nonredeemable noncontrolling interests		(593)		(388)		(1,829)		(1,392)
Comprehensive income attributable to the Company	$	29,581	$	18,302	$	99,651	$	36,440

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense include ($1,644) and ($5,084) for the three and nine months ended September 26, 2021, respectively, and ($1,674) and ($3,376) for the three and nine months ended September 27, 2020, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $368 and $1,139 for the three and nine months ended September 26, 2021, respectively, and $378 and $763 for the three and nine months ended September 27, 2020, respectively.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended September 26, 2021	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at June 27, 2021	36,215	$	489	$	435,608	$	(10,235)	$	154,769	$	(743,819)	$	15,290	$	(147,898)
Net income (1)	—		—		—		—		29,256		—		593		29,849
Other comprehensive income, net of tax	—		—		—		325		—		—		—		325
Cash dividends on common stock	—		—		48		—		(12,845)		—		—		(12,797)
Exercise of stock options	51		1		3,111		—		—		—		—		3,112
Acquisition of Company common stock	(103)		—		—		—		—		(12,367)		—		(12,367)
Stock-based compensation expense	—		—		4,317		—		—		—		—		4,317
Issuance of restricted stock	15		—		(873)		—		—		873		—		—
Tax effect of restricted stock awards	—		—		(1,423)		—		—		—		—		(1,423)
Distributions to noncontrolling interests	—		—		—		—		—		—		(594)		(594)
Other	5		—		(46)		—		198		278		—		430
Balance at September 26, 2021	36,183	$	490	$	440,742	$	(9,910)	$	171,378	$	(755,035)	$	15,289	$	(137,046)

For the nine months ended September 26, 2021
Balance at December 27, 2020	32,545	$	453	$	254,103	$	(14,168)	$	219,158	$	(741,724)	$	15,239	$	(266,939)
Net income (1)	—		—		—		—		95,393		—		1,829		97,222
Other comprehensive income, net of tax	—		—		—		4,258		—		—		—		4,258
Repurchase and conversion of Series B Convertible Preferred Stock	3,489		35		174,631		—		(110,498)		—		—		64,168
Cash dividends on common stock	—		—		110		—		(27,750)		—		—		(27,640)
Cash dividends on preferred stock	—		—		—		—		(4,121)		—		—		(4,121)
Exercise of stock options	199		2		11,209		—		—		—		—		11,211
Acquisition of Company common stock	(187)		—		—		—		—		(20,555)		—		(20,555)
Stock-based compensation expense	—		—		12,519		—		—		—		—		12,519
Issuance of restricted stock	125		—		(6,538)		—		—		6,538		—		—
Tax effect of restricted stock awards	—		—		(5,310)		—		—		—		—		(5,310)
Distributions to noncontrolling interests	—		—		—		—		—		—		(1,779)		(1,779)
Other	12		—		18		—		(804)		706		—		(80)
Balance at September 26, 2021	36,183	$	490	$	440,742	$	(9,910)	$	171,378	$	(755,035)	$	15,289	$	(137,046)

(1)	Net income to the Company for the three and nine months ended September 26, 2021 excludes $692 and $2,192, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 26, 2021, the accumulated other comprehensive loss of $9,910 was comprised of net unrealized foreign currency translation loss of $3,499 and net unrealized loss on the interest rate swap agreements of $6,411.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended September 27, 2020	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at June 28, 2020	32,349	$	451	$	243,577	$	(21,104)	$	212,104	$	(742,600)	$	15,724	$	(291,848)
Net income (2)	—		—		—		—		15,708		—		388		16,096
Other comprehensive income, net of tax	—		—		—		2,594		—		—		—		2,594
Cash dividends on common stock	—		—		78		—		(7,414)		—		—		(7,336)
Cash dividends on preferred stock	—		—		—		—		(3,412)		—		—		(3,412)
Exercise of stock options	131		1		7,499		—		—		—		—		7,500
Stock-based compensation expense	—		—		4,328		—		—		—		—		4,328
Issuance of restricted stock	2		—		(105)		—		—		105		—		—
Tax effect of restricted stock awards	—		—		(86)		—		—		—		—		(86)
Distributions to noncontrolling interests	—		—		—		—		—		—		(697)		(697)
Other	3		—		(81)		—		(75)		172		—		16
Balance at September 27, 2020	32,485	$	452	$	255,210	$	(18,510)	$	216,911	$	(742,323)	$	15,415	$	(272,845)

For the nine months ended September 27, 2020

Form: 10-Q

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